Director's Liability Requires Active Overt Acts, Not Just Designation: Chhattisgarh HC

The Chhattisgarh High Court has reasserted that criminal liability cannot be automatically fastened upon corporate directors based solely on their official designation or passive knowledge of an alleged conspiracy. In a decisive ruling that safeguards personal liberty against vague allegations, the Court granted regular bail to a director accused in a massive liquor corruption scandal, emphasizing that 'vicarious criminal liability cannot be inferred unless specifically provided by statute.'

A Single Judge bench of Justice Amitendra Kishore Prasad heard the regular bail application preferred under Section 483 of the Bharatiya Nagarik Suraksha Sanhita, 2023. The applicant, a Director associated with manpower supply agencies, was embroiled in a corruption case involving the Chhattisgarh State Marketing Corporation Limited (CSMCL) for alleged illegal extraction of commission and siphoning of public funds.

Court Rejects 'Guilt by Association' in Corruption Racket

The Court observed that the prosecution failed to attribute specific overt acts to the applicant in the initial First Information Report (FIR), which was registered under Section 120-B of the Indian Penal Code, 1860 and Section 7(b) of the Prevention of Corruption Act, 1988. It noted that the applicant's name was notably absent from the initial allegations despite claims of a systemic commission mechanism.

The Court, in its reasoning, observed: "...mere knowledge of an alleged illegal activity, howsoever strongly suspected, cannot by itself satisfy the legal ingredients of criminal conspiracy under Section 120-B IPC. The essence of conspiracy is the existence of an agreement between two or more persons to commit an illegal act or a legal act by illegal means. Unless there exists prima facie material demonstrating conscious participation in such agreement, criminal liability cannot be inferred merely from managerial association or corporate position."

Directives Issued for Regular Bail

The Court has the following directions:

"(i) The applicant shall not directly or indirectly make any inducement, threat or promise to any person acquainted with the facts of the case so as to dissuade such person from disclosing the facts before the Court or any investigating authority.

(ii) The applicant shall surrender his passport, if any (if not already surrendered), before the concerned Trial Court and shall not leave the territory of India without prior permission of the said Court.

(iii) The applicant shall remain present before the Trial Court on each and every date fixed unless exempted in accordance with law.

(iv) The applicant shall not indulge in any act which may delay or prejudice the fair conduct of the trial.

(v) The applicant shall continue to cooperate with the investigating agency as and when required in accordance with law.

(vi) In the event of violation of any of the aforesaid conditions, it shall be open to the State to seek cancellation of bail in accordance with law.

(vii) In addition, the appellant will provide one telephone/mobile No. on which he can be contacted by the concerned Officials to ascertain his whereabouts while he is on bail."

Background: Allegations of a Systematic Corruption Syndicate

The prosecution alleged that a well-organized syndicate, including public servants and private manpower agencies, orchestrated a racket within the CSMCL. It was claimed that agencies were forced to pay a commission calculated as a percentage of their bills to secure payment clearances. The investigation was triggered following a search operation by the Enforcement Directorate under the Prevention of Money Laundering Act, 2002, which intercepted cash amounting to Rs. 28.80 lakhs.

Counsel for the applicant argued that the applicant resigned from the position of Whole-Time Director in early 2020 and had no operational control during the material period of the conspiracy. Citing Sunil Bharti Mittal v. Central Bureau of Investigation ( "(2015) 4 SCC 609": 2015 CaseBase(SC) 704), they contended that a director cannot be prosecuted without specific overt acts. They further argued that since the companies were not arraigned as accused, the prosecution against its officers was defective as per Aneeta Hada v. Godfather Travels & Tours Pvt. Ltd.. The State opposed the bail, citing the magnitude of the economic offence and the applicant's alleged role in managing the companies that generated illegal funds through manipulated billing.

Justice Prasad highlighted that the investigation was complete, the charge-sheet had been filed on 18.05.2026, and the applicant had cooperated with the agency for 18 months prior to his arrest. The Court relied on Satender Kumar Antil v. CBI ( "(2022) 10 SCC 51": 2022 CaseBase(SC) 640) and Dataram Singh v. State of U.P. ( "(2018) 3 SCC 22": 2018 CaseBase(SC) 879) to reiterate that when investigation is complete, continued detention serves no purpose other than pre-trial punishment.

Key Takeaways:

Culpability is Individual, Not Institutional

Directors cannot be held vicariously liable for corporate crimes unless the statute explicitly mandates it or direct evidence of their individual participation exists.

Suspicion is Not Proof of Conspiracy

Mere knowledge or passive association with individuals involved in a crime does not constitute a 'meeting of minds' required to prove a criminal conspiracy under Indian Penal Code, 1860.

Liberty Trumps Gravity in Economic Offences

Following P. Chidambaram v. Directorate of Enforcement  and Arvind Dham v. Directorate of Enforcement, the Court affirmed that the serious nature of an economic offence alone is not a sufficient ground to deny bail if the investigation is concluded and the accused is not a flight risk.

Failure to Implead Company is a Legal Infirmity

If the alleged offence is committed by a corporate entity, the failure to name the company as an accused complicates the prosecution of its individual officers, as established in Aneeta Hada v. Godfather Travels & Tours Pvt. Ltd..

Ratio Decidendi:

Criminal liability is personal and cannot be fastened upon a Director or officer of a company solely by virtue of their designation or managerial association. For the charge of criminal conspiracy, the prosecution must establish a prima facie agreement or meeting of minds, as passive knowledge or suspicion cannot substitute the legal requirement of an agreement under Section 120-B of the Indian Penal Code, 1860.

Case Details:
Case No.: MCRC No. 5063 of 2026
NeutralCitation: 2026:CGHC:27550
Case Title: Ajay Lohia vs. State of Chhattisgarh
Appearances:
For the Petitioner(s): Mr. Abhimanyu Bhaduri, Senior Advocate; Mr. Rajeev Shrivastava, Senior Advocate; Mr. Aarav Pandit, Mr. Yashraj Verma, Kumar Harsh & Ms. Roohina Dua, Advocates
For the Respondent(s): Mr. Praveen Das, Additional Advocate General

Source: 2026 CaseBase(CTH) 8